Kevin Warsh at Jackson Hole: "We have more work to do on inflation"

Federal Reserve Chairman Kevin Warsh delivered his first speech today (Friday) at the Jackson Hole conference since taking office, choosing not to commit to interest rate hikes, but leaving the door open for such a move. Warsh emphasized that the speech is not "forward guidance" and does not present a formal reaction function of the central bank, and that the short-term interest rate remains its primary policy tool.

Inflation was at the center of the remarks. Warsh said that "price stability is the primary focus" of the Fed at the moment, and that the 2% target for the PCE index is "firm and fixed." According to him, inflation data for the summer months were better than expected, but underlying trends have not improved significantly, and progress over the last two years has been moderate. "If the Fed cannot be confident that inflation is converging to the target clearly and at a sufficient pace — we have work to do."

In the macro picture, Warsh presented a relatively positive assessment of the American economy: "The economy looks as if it has strengthened, private consumption remains healthy and the labor market is stable, while investments are growing at a fast pace."

Warsh chose to focus on his working philosophy as chairman. "I stand here today committed to discipline, not to a decision," he said before an audience that included his colleagues on the Federal Open Market Committee (FOMC), economists, and media personnel. Warsh, a long-time critic of the "forward guidance" system, argued that markets should interpret economic data themselves and not wait for Fed hints. In a line that became the central quote of the speech, he said: "You can call it a plan, you can call it a roadmap. Just don't call it forward guidance" — a practice that he says is already "past its time."

According to CNBC, since taking office in May — and this is his hundredth day in the chairman's seat — Warsh has established five working groups that are examining various areas of the central bank's activity. The stated goal: to wean markets off the addiction to every word that comes out of the mouths of policymakers, and to shape a "quieter Fed."

Warsh's approach represents a sharp turn compared to his predecessors. At Jackson Hole last year, former Fed Chairman Jerome Powell hinted at upcoming interest rate cuts — a hint that ignited an aggressive rally on Wall Street. Warsh, by contrast, seeks to return to a style of operation that characterized the Fed in the period before the 2008 crisis: less certainty for the markets, and less involvement of the central bank in their daily conduct.

Even when asked if he would at least commit to a clear "rule" that would determine when the interest rate would change, Warsh replied in the negative. "Our knowledge simply doesn't reach that far — at least not yet," he said, adding that he and his colleagues intend to develop more reliable models, while acknowledging that accuracy in economic forecasts is "still just an aspiration" — especially in a world where geopolitics, supply chains, and technology are changing at a fast pace.

Special attention was given to the fact that Warsh did not refer at all to the recent announcement by US Treasury Secretary Scott Bessent regarding the acceleration of government bond buybacks — a move perceived as contrary to Warsh's own vision for reducing government involvement in the markets.